Macy’s, Inc. Reports Third Quarter Results
Company updates guidance, outlines strategy on real estate
CINCINNATI–(BUSINESS WIRE)–Macy’s, Inc. (NYSE:M) today reported earnings per share of 36 cents in
the third quarter of 2015, ended Oct. 31, 2015. Excluding asset
impairment charges of $111 million, or 20 cents per share, primarily
related to the previously-announced plans to close 35 to 40 stores in
early 2016, third quarter earnings per share were 56 cents per share.
This compares with 61 cents per diluted share in the third quarter of
2014.
(Editor’s Note: This morning, Macy’s, Inc and Luxottica Group also
issued a separate news release announcing an agreement to open licensed
LensCrafters departments in as many as 500 Macy’s stores.)
For the first three quarters of 2015, Macy’s, Inc.’s diluted earnings
per share were $1.56. Excluding asset impairment charges of $111
million, or 20 cents per share, primarily related to planned 2016 store
closings, year-to-date earnings per diluted share were $1.76. This
compares with earnings of $2.01 per diluted share in the first three
quarters of 2014.
“We are disappointed that the pace of sales did not improve in the third
quarter, as we had expected. Spending by domestic customers remained
tepid, especially in key apparel and accessory categories.
Simultaneously, the slowdown in buying by international visitors
continued to significantly impact Macy’s and Bloomingdale’s stores in
tourist centers, which are some of our company’s largest-volume and most
profitable locations,” said Terry J. Lundgren, chairman and chief
executive officer of Macy’s, Inc.
“We have begun testing and learning from new sales growth initiatives
that we believe will begin yielding incremental results in the quarters
and years ahead. This included the opening of the first five Macy’s
Backstage off-price stores in the New York City metro area (with a sixth
opening planned in the fourth quarter),” Lundgren said.
“Heading into the fourth quarter, we are shifting our organization into
overdrive to focus on sales-driving activities in the holiday shopping
season, when Macy’s and Bloomingdale’s shine as destinations for
gift-giving and self-purchase,” he added. “We also will be opening
stores in several of our nameplates in the fourth quarter, including a
new Bloomingdale’s at Ala Moana in Honolulu.”
“Moving forward, we are accelerating steps needed to adapt in response
to changing customer shopping preferences so we can restore our annual
comparable sales growth on an owned plus licensed basis in the years
ahead to the level of 2 percent to 3 percent while re-attaining an
EBITDA rate as percent of sales of 14 percent. This includes building on
our strength as a leading omnichannel innovator with consistent growth
in online sales,” Lundgren said. “No other retailer has our track record
of mastering change and creating shareholder value with a model of
customer centricity. We have a deep and resourceful management team that
is skilled in creating and executing successful strategies. Since the
beginning of fiscal 2009, we have returned nearly $9 billion to
shareholders. Our Total Shareholder Return has been 540 percent during
that period, compared with a 121 percent increase in the Dow Jones
Industrial Average.”
Real Estate Considerations
Macy’s, Inc. is pursuing the following strategic real estate initiatives:
-
Based on a successful collaboration on Macy’s previously announced
Brooklyn store redevelopment project, the company has engaged Tishman
Speyer in an expanded relationship to advise and support the company’s
senior management team in identifying and advancing potential store
redevelopment projects nationwide. The company may request Tishman
Speyer to participate in bidding for certain of these projects. In all
cases, a third party will be used to manage the bidding and
negotiations process. -
The company has begun a process to explore joint ventures or other
deal structures with third parties to redevelop Macy’s flagship real
estate assets in Manhattan (Herald Square), San Francisco (Union
Square), Chicago (State Street) and Minneapolis (downtown Nicollet
Mall) in a manner that maintains a robust Macy’s retail store presence
while also bringing alternative use into those buildings; this
exploration could expand to include other assets, including mall-based
properties, to the extent opportunities are available. -
The company will continue to pursue selected real estate dispositions
and monetize assets in instances where the business is simultaneously
enhanced (such as the recently announced real estate sales of
underutilized portions of properties in Brooklyn and downtown Seattle)
or where the value of real estate significantly outweighs the value of
the retail business (such as the recent sale of Macy’s stores in
Cupertino and downtown Pittsburgh).
After extensive review with the assistance of our experienced financial,
tax, legal and real estate advisors, the company has decided not to
pursue the formation of a REIT at this time. The board of directors has
concluded that a REIT does not offer sufficient upside potential for
value creation. To the extent that circumstances change, we may revisit
this alternative in the future.
While much work has been done to date, Macy’s, Inc. is continuing to
analyze its real estate portfolio to identify opportunities to drive
additional shareholder value. The company is open to considering
additional ideas for further enhancing shareholder value while
maintaining an investment-grade credit rating and an operating structure
that fosters sales and earnings growth.
Ongoing Business Strategies/Actions
Macy’s, Inc. is continuing to execute a number of key strategies and
actions going forward to adapt its business model as an omnichannel
retailer committed to outstanding stores as a competitive
differentiator. These adjustments are rooted in Macy’s MOM strategies
(My Macy’s localization, Omnichannel and Magic Selling customer
engagement) and Bloomingdale’s focus on omnichannel opportunities,
contemporary style and personalized service — which have proven to be a
powerful driver of success. In part, the company is:
-
Accelerating investments in Macy’s, Bloomingdale’s and Bluemercury’s
digital and mobile capabilities to mirror the shift to increased
online shopping, where the company continues to see double-digit,
year-over-year sales increases. Macy’s, Inc. is already a leader in
this area, and ranked as the seventh largest Internet retailer in the
United States. -
Concentrating its resources in top stores in the best locations so
each store is a more compelling magnet for customer activity and uses
its selling space more productively. Best stores will see intensified
merchandise assortments in key destination departments such as jewelry
and watches, strategically selected licensed departments, strengthened
visual presentation, enhanced staffing and more local marketing.
Meanwhile, in early 2016, the company will be closing 35 to 40 of its
current portfolio of about 800 Macy’s and Bloomingdale’s stores, as
previously announced, and expects it will continue to reduce the
number of stores over time.
-
Reducing expense and tightening capital spending to operate more
efficiently and fund the highest-potential growth initiatives. Macy’s,
Inc.’s target is to reduce annual SG&A by $500 million (net of growth
initiatives) from previously planned levels by 2018, with incremental
progress in 2016 and 2017 toward that goal. These structural expense
reductions will result in charges to be taken in each of the three
years. Specific plans to achieve these savings are being formulated.
Macy’s, Inc. will reduce capital spending to less than $1 billion in
2016 from the $1.2 billion expected in 2015.
The company also is quickly building-out new directions for the
longer-term future:
-
Expand Macy’s Backstage as an exciting new dimension in retailing
across America. Over the next two years, the company will roll out
about 50 free-standing Macy’s Backstage stores in off-mall locations,
building on the pilot launch this fall. In addition, in spring 2016
the company will pilot Backstage stores within up to 10 existing
Macy’s store locations, creating a new hybrid store (the first in
retailing) that offers the latest fashions, outstanding service and
major brands for which Macy’s is known, along with the thrill of the
hunt associated with the finds and bargains at Backstage. -
Open approximately 40 additional Bluemercury self-standing beauty
specialty stores (bringing the total store base to approximately 115
by the end of 2017), while also integrating Bluemercury shops into the
beauty departments of Macy’s stores. -
Appropriately expand Macy’s internationally based on the learnings we
expect from the Macy’s China Limited pilot with Alibaba’s Tmall Global
beginning in the fourth quarter.
Third Quarter Sales
Sales in the third quarter of 2015 totaled $5.874 billion, a decrease of
5.2 percent, compared with sales of $6.195 billion in the same period
last year. Comparable sales on an owned plus licensed basis were down by
3.6 percent in the third quarter. On an owned basis, third quarter
comparable sales declined by 3.9 percent.
For the year to date, Macy’s, Inc. sales totaled $18.210 billion, down
2.8 percent from total sales of $18.741 billion in the first three
quarters of 2014. Comparable sales on an owned plus licensed basis were
down by 1.7 percent year-to-date in 2015. On an owned basis,
year-to-date comparable sales declined by 2.2 percent.
In the third quarter, the company opened a new Macy’s store in Ponce,
PR, five Macy’s Backstage stores in metro New York City, and 10 new
Bluemercury freestanding specialty stores. The company closed Macy’s
stores in Bedford, NH, and Owings Mills, MD. In the fourth quarter,
scheduled store openings include a full-line Bloomingdale’s in Honolulu,
three Bloomingdale’s Outlets, and one Macy’s Backstage. A Macy’s store
in Los Angeles, is scheduled to close in the fourth quarter of 2015 in
preparation for a new store to be built in the same mall.
Operating Income
Macy’s, Inc.’s third quarter 2015 operating income was $369 million or
6.3 percent of sales, excluding asset impairment charges of $111 million
primarily related to previously-announced plans to close 35 to 40 stores
in early 2016. This compares with operating income of $422 million or
6.8 percent of sales for the same period last year. Macy’s, Inc.’s
operating income including the asset impairment charges totaled $258
million or 4.4 percent of sales for the quarter ended Oct. 31, 2015.
For the first three quarters of 2015, Macy’s, Inc.’s operating income
was $1.214 billion or 6.7 percent of sales, excluding asset impairment
charges of $111 million primarily related to previously-announced store
closings. This compares with operating income of $1.436 billion or 7.7
percent of sales for the same period last year. Macy’s, Inc.’s
year-to-date 2015 operating income including the asset impairment
charges totaled $1.103 billion or 6.1 percent of sales.
Cash Flow
Net cash provided by operating activities was $278 million in the first
three quarters of 2015, compared with $841 million in the first three
quarters of 2014. Net cash used by investing activities in the first
three quarters of 2015 was $861 million, compared with $660 million a
year ago. Investing activities in year-to-date 2015 included $212
million for the acquisition of Bluemercury. Net cash used by financing
activities in the first three quarters of 2015 was $1.189 billion,
compared with net cash used by financing activities in the first three
quarters of 2014 of $1.406 billion.
The company repurchased approximately 16.7 million shares of its common
stock for a total of approximately $900 million in the third quarter of
2015. In the fiscal year to date, the company repurchased approximately
30.6 million shares of its common stock for approximately $1.84 billion.
At Oct. 31, 2015, the company had remaining authorization to repurchase
up to approximately $700 million of its common stock.
Updated Guidance
The company has revised its 2015 guidance. Earnings per diluted share
for the full-year 2015 now are expected in the range of $4.20 to $4.30,
excluding asset impairment charges associated primarily with previously
announced store closings. This compares with previous guidance in the
range of $4.70 to $4.80. Updated annual guidance calculates to guidance
for fourth quarter earnings of $2.54 to $2.64 per diluted share,
excluding any additional charges associated with store closings or cost
reductions. Earnings guidance for 2015 includes gains from asset sales,
including approximately $60 million from the sale of real estate in
Seattle and an expected $250 million gain on the sale of real estate in
downtown Brooklyn.
Guidance is for full-year 2015 comparable sales on an owned plus
licensed basis to decrease by 1.8 percent to 2.2 percent, compared with
previous guidance of approximately flat. This calculates to fourth
quarter comparable sales on an owned plus licensed basis to decline by
2.0 percent to 3.0 percent. Full-year and fourth quarter 2015 comparable
sales on an owned basis will be approximately 50 basis points lower than
on an owned plus licensed basis. The company expects 2015 total sales to
be down by 2.7 percent to 3.1 percent, compared to previous guidance for
total sales to be down approximately 1 percent.
Important Information Regarding Financial
Measures
Please see the final pages of this news release for important
information regarding the calculation of the company’s comparable sales
and non-GAAP financial measures.
Macy’s, Inc., with corporate offices in Cincinnati and New York, is one
of the nation’s premier retailers, with fiscal 2014 sales of $28.105
billion. The company operates about 900 stores in 45 states, the
District of Columbia, Guam and Puerto Rico under the names of Macy’s,
Bloomingdale’s, Bloomingdale’s Outlet, Macy’s Backstage and Bluemercury,
as well as the macys.com, bloomingdales.com and bluemercury.com
websites. Bloomingdale’s in Dubai is operated by Al Tayer Group LLC
under a license agreement.
All statements in this press release that are not statements of
historical fact are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are
based upon the current beliefs and expectations of Macy’s management and
are subject to significant risks and uncertainties. Actual results could
differ materially from those expressed in or implied by the
forward-looking statements contained in this release because of a
variety of factors, including conditions to, or changes in the timing
of, proposed transactions, prevailing interest rates and non-recurring
charges, competitive pressures from specialty stores, general
merchandise stores, off-price and discount stores, manufacturers’
outlets, the Internet, mail-order catalogs and television shopping and
general consumer spending levels, including the impact of the
availability and level of consumer debt, the effect of weather and other
factors identified in documents filed by the company with the Securities
and Exchange Commission. In light of these risks and uncertainties,
readers are cautioned not to place undue reliance on forward-looking
statements. Except as may be required by applicable law, Macy’s
disclaims any obligation to update its forward-looking statements for
any reason.
(NOTE: Additional information on Macy’s, Inc., including past news
releases, is available at www.macysinc.com/pressroom.
A webcast of Macy’s, Inc.’s call with analysts and investors will be
held today (Nov. 11) at 9 a.m. (ET). Macy’s, Inc.’s webcast is
accessible to the media and general public via the company’s website at www.macysinc.com.
Analysts and investors may call in on 1-888-637-7746, passcode 3336328.
A replay of the conference call can be accessed on the website or by
calling 1-888-203-1112 (same passcode) about two hours after the
conclusion of the call.)
Macy’s, Inc. management will present at the Morgan Stanley Global
Consumer & Retail Conference at 10 a.m. Eastern Time on Wednesday, Nov.
18, 2015, in New York City. Media and investors may access the live
webcast of the presentation at www.macysinc.com/ir
at that time. The webcasts will be available for replay.
MACY’S, INC.
Consolidated Statements of Income
(All amounts in millions except percentages and per share figures) |
||||||||||||||
13 Weeks Ended | 13 Weeks Ended | |||||||||||||
October 31, 2015 | November 1, 2014 | |||||||||||||
$ |
% to |
$ |
% to |
|||||||||||
Net sales | $ | 5,874 | $ | 6,195 | ||||||||||
Cost of sales (Note 2) | 3,537 | 60.2 | % | 3,766 | 60.8 | % | ||||||||
Gross margin | 2,337 | 39.8 | % | 2,429 | 39.2 | % | ||||||||
Selling, general and administrative expenses | (1,968 | ) | (33.5 | %) | (2,007 | ) | (32.4 | %) | ||||||
Asset impairments | (111 | ) | (1.9 | %) | – | – | % | |||||||
Operating income | 258 | 4.4 | % | 422 | 6.8 | % | ||||||||
Interest expense – net | (80 | ) | (96 | ) | ||||||||||
Income before income taxes | 178 | 326 | ||||||||||||
Federal, state and local income tax expense (Note 3) | (61 | ) | (109 | ) | ||||||||||
Net income | 117 | 217 | ||||||||||||
Net loss attributable to noncontrolling interest | 1 | – | ||||||||||||
Net income attributable to Macy’s, Inc. shareholders | $ | 118 | $ | 217 | ||||||||||
Basic earnings per share attributable to Macy’s, Inc. shareholders |
$ | .36 | $ | .62 | ||||||||||
Diluted earnings per share attributable to Macy’s, Inc. |
$ | .36 | $ | .61 | ||||||||||
Average common shares: | ||||||||||||||
Basic | 325.3 | 351.6 | ||||||||||||
Diluted | 329.7 | 357.7 | ||||||||||||
End of period common shares outstanding | 314.4 | 346.0 | ||||||||||||
Depreciation and amortization expense | $ | 271 | $ | 263 | ||||||||||
MACY’S, INC.
Consolidated Statements of Income (Unaudited) |
||
Notes: | ||
(1) |
Because of the seasonal nature of the retail business, the results |
|
(2) |
Merchandise inventories are valued at the lower of cost or market |
|
(3) |
Federal, state and local income taxes differ from the federal |
|
MACY’S, INC.
Consolidated Statements of Income (All amounts in millions except percentages and per share figures) |
||||||||||||||
39 Weeks Ended | 39 Weeks Ended | |||||||||||||
October 31, 2015 | November 1, 2014 | |||||||||||||
$ |
% to |
$ |
% to |
|||||||||||
Net sales | $ | 18,210 | $ | 18,741 | ||||||||||
Cost of sales (Note 2) | 10,947 | 60.1 | % | 11,274 | 60.2 | % | ||||||||
Gross margin | 7,263 | 39.9 | % | 7,467 | 39.8 | % | ||||||||
Selling, general and administrative expenses | (6,049 | ) | (33.2 | %) | (6,031 | ) | (32.1 | %) | ||||||
Asset impairments | (111 | ) | (0.6 | %) | – | – | % | |||||||
Operating income | 1,103 | 6.1 | % | 1,436 | 7.7 | % | ||||||||
Interest expense – net | (268 | ) | (296 | ) | ||||||||||
Income before income taxes | 835 | 1,140 | ||||||||||||
Federal, state and local income tax expense (Note 3) | (308 | ) | (407 | ) | ||||||||||
Net income | 527 | 733 | ||||||||||||
Net loss attributable to noncontrolling interest | 1 | – | ||||||||||||
Net income attributable to Macy’s, Inc. shareholders | $ | 528 | $ | 733 | ||||||||||
Basic earnings per share attributable to Macy’s, Inc. shareholders |
$ | 1.58 | $ | 2.04 | ||||||||||
Diluted earnings per share attributable to Macy’s, Inc. |
$ | 1.56 | $ | 2.01 | ||||||||||
Average common shares: | ||||||||||||||
Basic | 333.9 | 358.9 | ||||||||||||
Diluted | 339.0 | 365.2 | ||||||||||||
End of period common shares outstanding | 314.4 | 346.0 | ||||||||||||
Depreciation and amortization expense | $ | 791 | $ | 770 |
|
|||||||||
MACY’S, INC.
Consolidated Statements of Income (Unaudited) |
||
Notes: | ||
|
||
(1) |
Because of the seasonal nature of the retail business, the results |
|
(2) |
Merchandise inventories are valued at the lower of cost or market |
|
(3) |
Federal, state and local income taxes differ from the federal |
|
MACY’S, INC. Consolidated Balance Sheets (Unaudited) (millions) |
|||||||||
October 31, | January 31, | November 1, | |||||||
2015 | 2015 | 2014 | |||||||
ASSETS: | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 474 | $ | 2,246 | $ | 1,048 | |||
Receivables | 200 | 424 | 292 | ||||||
Merchandise inventories | 8,145 | 5,516 | 7,789 | ||||||
Prepaid expenses and other current assets | 425 | 493 | 424 | ||||||
Total Current Assets | 9,244 | 8,679 | 9,553 | ||||||
Property and Equipment – net | 7,629 | 7,800 | 7,787 | ||||||
Goodwill | 3,897 | 3,743 | 3,743 | ||||||
Other Intangible Assets – net | 518 | 496 | 504 | ||||||
Other Assets | 798 | 743 | 825 | ||||||
Total Assets | $ | 22,086 | $ | 21,461 | $ | 22,412 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||||||
Current Liabilities: | |||||||||
Short-term debt | $ | 857 | $ | 76 | $ | 76 | |||
Merchandise accounts payable | 3,776 | 1,693 | 3,814 | ||||||
Accounts payable and accrued liabilities | 2,692 | 3,109 | 2,563 | ||||||
Income taxes | 102 | 296 | 114 | ||||||
Deferred income taxes | 375 | 362 | 396 | ||||||
Total Current Liabilities | 7,802 | 5,536 | 6,963 | ||||||
Long-Term Debt | 7,106 | 7,265 | 7,130 | ||||||
Deferred Income Taxes | 1,078 | 1,081 | 1,314 | ||||||
Other Liabilities | 2,125 | 2,201 | 1,654 | ||||||
Shareholders’ Equity: | |||||||||
Macy’s, Inc. | 3,971 | 5,378 | 5,351 | ||||||
Noncontrolling interest | 4 | – | – | ||||||
Total Shareholders’ Equity | 3,975 | 5,378 | 5,351 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 22,086 | $ | 21,461 | $ | 22,412 | |||
Note: Certain reclassifications were made to prior year’s amounts to
conform with the classifications of such amounts in the most recent
years.
MACY’S, INC.
Consolidated Statements of Cash Flows (millions) |
||||||||
39 Weeks Ended | 39 Weeks Ended | |||||||
October 31, 2015 | November 1, 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 527 | $ | 733 | ||||
Adjustments to reconcile net income to net cash provided by |
||||||||
Asset impairments | 111 | – | ||||||
Depreciation and amortization | 791 | 770 | ||||||
Stock-based compensation expense | 65 | 55 | ||||||
Amortization of financing costs and premium on acquired debt |
(14 | ) | (4 | ) | ||||
Changes in assets and liabilities: | ||||||||
Decrease in receivables | 226 | 154 | ||||||
Increase in merchandise inventories | (2,600 | ) | (2,232 | ) | ||||
Increase in prepaid expenses and other current assets |
(36 | ) | (4 | ) | ||||
Increase in other assets not separately identified | (1 | ) | (46 | ) | ||||
Increase in merchandise accounts payable | 1,843 | 1,935 | ||||||
Decrease in accounts payable, accrued liabilities and other items |
(380 | ) | (298 | ) | ||||
Decrease in current income taxes | (194 | ) | (248 | ) | ||||
Increase (decrease) in deferred income taxes | (21 | ) | 29 | |||||
Decrease in other liabilities not separately identified | (39 | ) | (3 | ) | ||||
Net cash provided by operating activities |
278 | 841 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (591 | ) | (547 | ) | ||||
Capitalized software | (249 | ) | (190 | ) | ||||
Acquisition of Bluemercury, Inc., net of cash acquired | (212 | ) | – | |||||
Disposition of property and equipment | 94 | 79 | ||||||
Other, net | 97 | (2 | ) | |||||
Net cash used by investing activities | (861 | ) | (660 | ) | ||||
Cash flows from financing activities: |
||||||||
Debt issued | 791 | 500 | ||||||
Financing costs | – | (5 | ) | |||||
Debt repaid | (152 | ) | (462 | ) | ||||
Dividends paid | (344 | ) | (314 | ) | ||||
Increase in outstanding checks | 136 | 123 | ||||||
Acquisition of treasury stock | (1,785 | ) | (1,456 | ) | ||||
Issuance of common stock | 160 | 208 | ||||||
Proceeds from noncontrolling interest | 5 | – | ||||||
Net cash used by financing activities | (1,189 | ) | (1,406 | ) | ||||
Net decrease in cash and cash equivalents | (1,772 | ) | (1,225 | ) | ||||
Cash and cash equivalents at beginning of period | 2,246 | 2,273 | ||||||
Cash and cash equivalents at end of period | $ | 474 | $ | 1,048 | ||||
Note: Certain reclassifications were made to prior year’s amounts to
conform with the classifications of such amounts in the most recent
years.
Contacts
Macy’s, Inc.
Media – Jim Sluzewski, 513-579-7764
Investor –
Matt Stautberg, 513-579-7780